Antitrust and Unfair Competition Law

ANTITRUST AND UNFAIR COMPETITION LAW SECTION: E-BRIEFS, NEWS AND NOTES-November, 2021

Welcome to the November E-briefs, News and Notes. This edition includes E-Briefs authored by Jonathan Levine, Pritzker Levine LLP, Kerry C. Klein, Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP and Bob Connolly, Law Office of Robert Connolly.  The Agency Update section includes links to numerous DOJ/FTC press releases.  Merger enforcement is covered in many of the press releases.  A Deeper Dive discusses compliance training to educate executives on how to avoid labor market collusion troubles.

In Section News, continuing conditions from the COVID-19 pandemic have required the Section to move the November 18, 2021 Golden State Antitrust and Unfair Competition Law Institute (GSI) to a virtual event, although we are holding an outdoor reception on November 17 in San Francisco.  We are delaying the 2021 Antitrust Lawyer of the Year reception and dinner until May 2022. While we are disappointed that we will not be able to hold an in person GSI this autumn, we look forward to another record attendance on par with last year’s virtual GSI.  A GSI registration link, more info and sponsorship acknowledgment are below in the Section Update.  Lastly, the News and Notes section contains a link to Profile in Diversity Journal’s “Profiles in Women Worth Watching 20th Anniversary Edition” and other items.

If you would like more information on getting involved in the Section, or on E-briefs in particular, please reach out.  Thanks. bob@reconnollylaw.com.

Ebriefs

Certain Unfair Competition and Other Claims Involving HP Printer Firmware Updates Pass Motion to Dismiss Hurdle

Mobile Emergency Housing Corp. v. HP, Inc., Case No. 20-cv-09157-SVK (N.D. Cal.)

Jonathan Levine, Pritzker Levine LLP

On October 15, 2021, the United States District Court for the Northern District of California (Mag. Judge Susan Van Keulen) in large part rejected defendant HP, Inc.’s motion to dismiss and allowed most of plaintiffs’ class action claims relating to HP printer firmware updates to proceed. Mobile Emergency Housing Corp. v. HP, Inc., Case No. 20-cv-09157-SVK, Order Granting in Part and Denying in Part Defendant’s Motion to Dismiss Plaintiffs’ Third Amended Complaint, Dkt. 52 (N.D. Cal. Oct. 15, 2021) (“MTD Order”).

Factual Background

Plaintiffs are businesses and individual consumers who purchased certain HP printers that stopped working after plaintiffs attempted to use compatible replacement toner cartridges not manufactured by HP.  In each instance, the printers stopped working and displayed a “supply problem” error message after HP had transmitted a firmware update to the printer over the internet.  Plaintiffs allege that HP’s firmware updates were done without authorization, that the firmware updates act as malware to make competitor’s less expensive replacement toner cartridges incompatible with HP’s printers, that this practice forces plaintiffs and other consumers to use only HP toner cartridges (which cost more), and that HP uses the firmware update process to collect data on the types of toner cartridges used by HP printer owners without their consent.

Plaintiffs allege that this conduct and practice by HP violates: (1) all three prongs of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Profs. Code § 17200; (2) the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1770; (3) the California False Advertising Law (“FAL”), Cal. Bus. & Profs. Code § 17500; (4) the California Comprehensive Computer Data Access and Fraud Act (“CCDAFA”), Cal. Penal Code § 502(c); (5) the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030(g); and (6) constitutes a trespass to chattels.  Plaintiffs seek damages and injunctive relief on behalf of a nationwide class.

HP’s Motion to Dismiss

HP moved to dismiss all of plaintiffs’ claims under Fed. R. Civ. P. 12(b)(1) and (6).  In support of its motion, HP asked the court to take judicial notice of certain information available on HP’s website about its printers and privacy policy, as well as printouts from an HP online message board.  Substantively, HP argued that plaintiffs lacked Article III standing under Fed. R. Civ. P. 12(b)(1) to assert any of their claims because they failed to adequately allege that they were injured by HP’s conduct in a manner sufficient to invoke federal jurisdiction.  HP then argued that each of plaintiffs’ claims should be dismissed under Fed. R. Civ. P. 12(b)(6) for the reasons summarized below.

With respect to the UCL, CLRA and FAL claims, HP argued that equitable restitution and injunctive relief is not available because the alleged injuries can be remedied with monetary damages, that all of the information plaintiffs allege was omitted or misrepresented was publicly disclosed by HP, that HP had no duty to disclose the information plaintiffs are complaining was omitted, that the “supply problem” error message was not likely to deceive, that the error message did not cause any injury, and that HP’s dynamic security feature in its printers served to benefit consumers overall and was not against public policy.

With respect to the federal CFAA claim, HP argued that this claim fails because HP’s firmware updates did not “damage” the printers or make them less secure, plaintiffs do not allege a statutory loss of at least $5,000 in the complaint, and plaintiffs admit in their complaint that HP accessed the printers with their authorization.

With respect to the California CCDAFA claim, HP argued that this claim fails because plaintiffs do not allege that HP accessed the printers without permission, HP publicly disclosed its practices that plaintiffs are complaining about, and because HP’s data collection practices did not circumvent any technical barriers.

Finally, HP argued that plaintiffs could not seek prospective injunctive relief because the allegations in the complaint that plaintiffs would continue to use their HP printers with non-HP replacement toner cartridges if possible were insufficient to establish standing to seek injunctive relief.

The Court’s Decision

The court first resolved HP’s request for judicial notice, finding that it could take judicial notice of the documents publicly available on HP’s website about its printers, its dynamic security feature, and its privacy policy because these were publicly available pages whose accuracy could not reasonably be questioned, even though none of these documents were cited in the complaint or incorporated by reference in the complaint.  The court did not take judicial notice of the printouts from an HP online message board because it did not rely on those printouts in its decision.  Although the court took judicial notice of some documents, it made clear that it was doing so only “for the fact that Defendant made these statements, but not for the truth of those statements.”  MTD Order at pp. 6-7.

The court had little trouble disposing of HP’s Article III argument under Fed. R. Civ. P. 12(b)(1), finding that “Plaintiffs allege that Defendant violated their individual rights and that they suffered injuries as a result of Defendant’s conduct” and that the injuries alleged are “concrete and particularized.”  MTD Order at p. 10.  Citing Ninth Circuit precedent, the court concluded that the “general factual allegations of injury resulting from the defendant’ conduct” were sufficient to survive a Rule 12(b)(1) motion to dismiss.  Id. at p. 11.

The court next addressed HP’s argument that some of plaintiffs’ claims fail because HP disclosed its challenged business practices in its privacy policy and other documents on its website.  The court rejected this argument because plaintiffs allege in their complaint that they were unaware of these disclosures, and contended in their opposition to the motion that did not rely on any of the statements HP was now pointing to in support of its motion, and did not visit any HP store page or website at any relevant time.  MTD Order at pp. 11-12.

The court also had little trouble resolving HP’s motion with respect to plaintiffs’ claims under the UCL, CLRA and FAL.  The court denied HP’s motion to dismiss these claims, finding that plaintiffs had sufficiently alleged fraud by omission when HP misrepresented what the problem was in the printer error messages and failed to disclose that HP had disabled the non-HP replacement cartridges through the firmware updates.  MTD Order at pp. 18-19.  Referencing the unfair prong of the UCL, the court also rejected HP’s argument that its practices benefited consumers and did not offend established public policy, noting that these were factual determinations inappropriate for a motion to dismiss.  Id. at pp. 20-21.  The court also specifically denied HP’s motion under the unlawful prong of the UCL, noting that it had upheld plaintiffs’ claims based on violations of the CFAA, the CCDAFA and the FAL.  Id. at p. 21.

The court granted in part and denied in part HP’s motion to dismiss the CFAA claim, finding that plaintiffs had adequately alleged damage to their printers under 18 U.S.C. § 1030(a)(5)(A) and a statutory aggregated loss of at least $5,000 under 18 U.S.C. § 1030(g), but that plaintiffs’ claim under 18 U.S.C. § 1030(a)(2)(C) was not sufficient as plead because while plaintiffs alleged that HP accessed the printers without authorization in some places in the complaint, plaintiffs also alleged elsewhere in their complaint that HP’s access was authorized.  With respect to this claim, the court granted leave to amend.  MTD Order at pp. 12-15.

With respect to the CCDAFA claim, the court upheld plaintiffs’ claims for violations of subsections 502(c)(1)-(5) of the Act, finding that plaintiffs had adequately alleged violations under these particular subsections (each describing different violative conduct).  MTD Order at pp. 15-17.  However, the court granted HP’s motion without leave to amend with respect to the claim under subsection 502(c)(7) in light of plaintiffs’ admission in their complaint that HP had permission to access their printers.  Id. at p. 17.  The court also granted HP’s motion with respect to the trespass to chattels claim (though with leave to amend) for the same reason.  Id. at p. 22.

Finally, the court denied HP’s motion to dismiss or strike plaintiffs’ request for injunctive relief, finding that plaintiffs’ allegations that they would continue to use their HP printers with non-HP replacement toner cartridges if possible were sufficient to establish standing to seek injunctive relief.  MTD Order at pp. 22-23.

Northern District Dismisses Remaining Intel Antitrust and UCL Claims in Intel Corp. v. Seven Networks, LLC

Kerry C. Klein, Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP

This case (Case No. 19-cv-07651-EMC) began when Intel Corporation (“Intel”) and Apple Inc. (“Apple”) sued five defendants, investment firms who partner with so-called patent assertion entities (“PAEs”).  PAEs are companies that aggressively pursue patent infringement litigation.  The investment firm defendants created massive portfolios of patents.  Plaintiffs alleged that the bundling of patents allowed defendants to “extort supracompetitive royalties unrelated to the value . . . of the [] patents.”   The complaint included the following causes of action: (1) an agreement to restrain competition in patent licensing, in violation of  § 1 of the Sherman Act; (2) unlawful asset acquisitions, in violation of § 7 of the Clayton Act; and (3) unfair competition, in violation of California Business & Professions Code § 17200.

When Apple voluntarily dismissed its claims against all defendants in July 2021 (all except one were dismissed with prejudice), the court asked the remaining parties to meet and confer to determine how Apple’s dismissal impacted the case.  The remaining parties agreed that, in light of Apple’s dismissal, Intel only had claims against two defendants.  The parties also agreed that five of the nine product markets identified in the Second Amended Complaint (“SAC”) were no longer at issue.  The remaining defendants moved to dismiss and strike the SAC.  On October 7, 2021, District Judge Edward Chen granted the motion to dismiss, but denied the anti-SLAPP motion.

Motion to Dismiss

The court first considered defendants’ argument that the four patent markets at issue were not plausible.  Although the court disagreed that the markets were not plausible, it stated that the SAC suffered from a “bigger problem”—that the markets are made up of both substitute patents and complementary patents.  Relying on Supreme Court and Ninth Circuit precedent, the court stated that a product market is generally about substitutes, not complements.  The court also relied on a statement in Areeda & Hovenkamp’s treatise that “[g]rouping complementary goods into the same market” is “economic nonsense.”  While recognizing that there could be commercial realities such that complementary patents should be considered part of the same market as substitute patents, the court found that Intel failed to show with specificity that commercial realities  required that any of the markets at issue should be made up of both substitute and complementary patents.  The court concluded: “Intel has simply included certain complementary patents without any specific explanation of their essentiality or substitutability in the market.”

Because the court considered only substitute patents as part of the four markets at issue, the court limited Intel’s patent aggregation claim to only a few patents.   The court held that Intel lacks standing to bring an antitrust claim with respect to the first patent market, because Intel had not been sued for infringement of any of the substitute patents.  For the other markets, defendants argued that some of the alleged patent substitutes were not, in fact, substitutes.  The court did not reach that issue, because Intel’s antitrust claims failed as a result of other infirmities.

The court next considered the question of market power.  In its prior orders, the court indicated that plaintiffs’ antitrust claims, as pled, turned on anticompetitive effects resulting from the alleged patent aggregation.  Anticompetitive effects can be shown through either direct evidence (such as actual reduced output, increased prices, or decreased quality) or indirect evidence.  As to the former, the court held that Intel failed to allege supracompetitive pricing tied to patent aggregation.  While the court ruled that, in theory, the patent aggregation could have allowed defendants to charge supercompetitive prices, it was implausible that the aggregation of the only two substitute patents remaining in one of the markets could have enabled supracompetitive pricing.  Because the court concluded that Intel failed to allege supracompetitive pricing as a result of patent aggregation, it dismissed Intel’s antitrust claims with prejudice.

Anti-SLAPP Motion

California’s anti-SLAPP statute is designed to allow early dismissal of meritless cases aimed at chilling expression through costly, time-consuming litigation.  The analysis of an anti-SLAPP motion proceeds in two steps.  At step one, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity.  When a claim is mixed, meaning that it is based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at the first step. Only if the Court determines that relief is sought based on protected activity does it reach the second step.   At step two, the burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated. 

The court considered the critical threshold issue of whether defendants have shown that the UCL/antitrust claim arises from protected activity (i.e., the filing of patent infringement lawsuits).   The court held that it did not, because the true conduct that Intel claims is anticompetitive is the aggregation of patents; that is not an act in furtherance of the right of petition or free speech.  The court also rejected defendants’ argument that Intel is seeking to enjoin protected infringement suits (thereby constituting a prior restraint) because it is not clear from the SAC that Intel is seeking to enjoin any patent infringement suits per se.  Therefore, the court denied defendants’ anti-SLAPP motion.

In “David and Goliath” Monopoly Battle, Court Decides That David Has a Sufficient Number of Stones in its Sling to Survive MTD

On September 30, 2021, Judge Amy Totenberg of the United States District Court for the Northern District of Georgia denied defendant PowerPlan’s motion to dismiss antitrust claims brought by would-be PowerPlan competitor Lucasys.  Lucasys Inc. v. PowerPlan, Inc., 1:20-cv-02987 (N.D. Ga. Sept. 30, 2021)-AT.  The Court deemed the case a “David and Goliath” battle and decided that David, at least for now, had a sufficient number of stones in its sling to proceed past the pleadings. The decision could be helpful to start-up challengers to incumbent firms.

Markets

Lucasys’ complaint alleged a primary market and two related secondary markets, all of which involve the sale of software and related services to regulated utilities. Plaintiff Lucasys is David: a start-up founded by former PowerPlan employees. Lucasys alleged that PowerPlan is Goliath: a monopolist of a primary “Utility Software Market” with 99% of regulated utilities as its customers. Lucasys further alleged that there is a secondary “Supplemental Management Service Market” in which Lucasys and other companies provide additional services to utilities, integrating PowerPlan data with “other applications to accomplish tasks the PowerPlan software could not.” Lucasys also alleged  another secondary market for “deferred tax solutions” in which Lucasys, PowerPlan, and one other company compete. 

Anti-Competitive Conduct

Lucasys alleged that PowerPlan launched a campaign of anti-competitive conduct to retaliate against its nascent competitor, Lucasys, for winning a bid over PowerPlan. Lucasys alleges that PowerPlan sent letters to companies doing business with Lucasys suggesting that Lucasys had stolen PowerPlan’s trade secrets. The Court summarized Lucasys’ allegations as claims that “when PowerPlan learns of competitors (like Lucasys) seeking to step out of the secondary market into the primary software one, it squashes that competition by inter alia reaching out to customers and leveraging its monopoly power to coerce customers to stop working with the competitor (such as Lucasys).”

Harm to Competition

Lucasys alleged that these letters deterred customers from working with challengers to PowerPlan’s dominance.  Lucasys alleged that PowerPlan’s conduct thereby harmed competition in the Utility Software Market by preventing companies from entering the market and competing with PowerPlan. Lucasys further alleged that PowerPlan’s conduct harmed competition in the secondary markets by reducing quality and choice and raising prices in those markets.

Motion to Dismiss

Lucasys asserted claims under Sections One and Two of the Sherman Act as well as state claims. Lucasys labeled some of its claims as “negative tying” in which PowerPlan conditioned customers’ purchase of software in the primary market on an agreement not to purchase competitors’ products in the secondary markets.

PowerPlan’s first ground for dismissal was that Lucasys lacked standing to assert claims regarding the Utility Software Market because it is not a market participant. The Court rejected this argument, finding that Lucasys had sufficiently pled that it was prepared to enter the Utility Software Market. The Court relied on Fifth Circuit authority in Sanger Ins. Agency v. HUB Intern., Ltd., 802 F.3d 732, 738 (5th Cir. 2013), holding that “nascent competitors” do not have to show that they had expended “substantial resources” to enter a market where the anticompetitive conduct at issue would have made such expenditures “futile.” The Court reasoned that Lucasys’ inability to grow was alleged to be the result of PowerPlan’s anticompetitive actions.

PowerPlan also moved to dismiss on the ground that Lucasys failed to allege plausible injury to competition because it only alleged harm to Lucasys, not competition in general. The Court rejected this argument, finding that Lucasys had sufficiently alleged “decreased product quality, stymied innovation, and raised prices.” The Court found that “At this juncture, Lucasys has argued that damage to it — PowerPlan’s only competitor that offered software solutions in the Supplemental Market — was damage to competition in general because the blocking of new products hampered innovation, reduced output, deprived consumers of the choice of a software component in the aftermarket, and ultimately raised prices.”

PowerPoint also challenged market definition for the tax solutions market, but the Court rejected that challenge, relying on the familiar principle that market definition is a fact-intensive inquiry best suited for resolution after discovery, citing the Fourth Circuit decision in E.I. du Pont de Nemours and Co. v. Kolon Industries, Inc., 637 F.3d 435, 443 (4th Cir. 2011), for this proposition.

Dismissal of Various Collusion Allegations Against German Auto Manufacturers Upheld in Not for Publication Opinion

Bob Connolly
Law Office of Robert Connolly

In re German Auto Manufacturers No. 20-17139 (9th Cir. October 26, 2021) (Not for publication)

A putative class of U.S. automobile dealers (“Direct Purchasers”) appealed District Court Judge Charles R. Breyer’s dismissal of their consolidated class action complaint alleging that five German automakers and their American subsidiaries violated § 1 of the Sherman Act, 15 U.S.C. § 1.

The Ninth Circuit panel held the district court properly dismissed plaintiffs’ claims.  Plaintiffs’ claims and Ninth Circuit’s response are:

            1.         Claim: Defendants engaged in a no-arms-race [technology] conspiracy to allocate market share.  Response: “Moreover, the allegations that Defendants coordinated major product updates and refreshes ‘could just as easily suggest rational, legal business behavior by the defendants as they could suggest an illegal conspiracy.’” Kendall, 518 F.3d at 1049; see also In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1193 (9th Cir. 2015) (“In an interdependent market, companies base their actions in part on the anticipated reactions of their competitors.”).

            2.         Claim: Defendants conspired to pay higher prices for steel.  Response:  The complaint did not plausibly allege a credible antitrust injury. Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012).

            3.         Claim:  Defendants conspired to not develop electric vehicles.  Response: “We cannot . . . infer an anticompetitive agreement when factual allegations just as easily suggest rational, legal business behavior.” See Name.Space, Inc. v. Internet Corp., 795 F.3d 1124, 1130 (9th Cir. 2015) (internal quotation marks omitted).”

No-Poach Allegations Against Hewlett-Packard a No Go

Fonseca v. Hewlett Packard, No. 20-56161 (9th Cir. October 14, 2021)(Not for publication) D.C. No. 3:19-cv-01748-GPC-MSB

In a brief, unpublished opinion, a three-judge panel affirmed the district court ruling that granted a motion to dismiss the complaint of former HP worker Bryant Fonseca alleging there was an illegal no-poach agreement between HP and 3D Systems Inc. 3D systems is a competitor that had previously “poached” i.e. hired,  some HP employees at higher salaries.

“After reviewing the record, briefs, and applicable law, we conclude the thorough and carefully reasoned opinion of the district court correctly articulates and applies the law to the facts of this case.”

The case is an appeal from the United States District Court for the Southern District of California, Gonzalo P. Curiel, District Judge, Fonseca v. Hewlett Packard, 3:19-cv-01748-GPC-MSB

Section News

31st Annual Golden State Antitrust and Unfair Competition Law Institute! November 18, 2021 The Antitrust and Unfair Competition Law Section hosts the Golden State Antitrust and Unfair Competition Law Institute (GSI) each year. This is the Section’s marquee event and brings together private and public sector attorneys, academics, experts, judges, and law students. GSI is a multi-session conference that features programs on recent developments in antitrust and unfair competition law, big stakes antitrust trials, antitrust enforcement, and a judges panel. Due to the pandemic, this year we will hold the Welcome Reception outdoors and most of the programming for the 31st Annual GSI virtually in the fall (registration open now), and hold the 31st Annual Antitrust Lawyer of the Year Reception and Dinner with some additional programming in Spring 2022 (separate registration to follow closer to the event). Earn 4.0 hours MCLE credits (Fall Virtual Event)
See All Details   Register Today

2021 Golden State Institute In Person Reception

Wednesday, November 17, 2021, 5:00 p.m. – 8:00 p.m. 

Outdoor Welcome Reception

The Vault Garden
555 California Street   
San Francisco, CA                      

                   

2021 ANTITRUST LAWYER OF THE YEAR: DANIEL M. WALL

The Antitrust and Unfair Competition Law Section of the California Lawyers Association is pleased to honor Daniel M. Wall of Latham & Watkins LLP as the 2021 Antitrust Lawyer of the Year. Dan is widely recognized as one of the leading antitrust lawyers in the United States. Throughout his 40 years in the antitrust bar, Dan has litigated landmark antitrust matters, including before the United States Supreme Court, as well as guided clients through cutting-edge government investigations and merger reviews.  The Section will honor Dan at the Antitrust Lawyer of the Year Reception and Dinner in spring 2022.  Details of that event are forthcoming.

MANY THANKS TO OUR GSI SPONSORS

The Antitrust & Unfair Competition Law Section wants to thank the following firms for their sponsorship of the 31st Annual Golden State Antitrust and Unfair Competition Law Institute:

Event Sponsors

A.B. Data       OSKR
Analysis Group        Rust Consulting
applEcon   The Brattle Group
Huntington Bank   U.S. Legal Support
NERA                Western Alliance Bank

Law Firm Sponsors

Cotchett Pitre & McCarthy LLP     Lieff Cabraser Heimann & Bernstein LLP
Covington & Burling LLP     Morgan, Lewis & Bockius LLP
DLA Piper LLP    Morrison & Foerster LLP
Faegre Drinker Biddle & Reath LLPO’Melveny & Myers LLP
Farella Braun + Martel LLP     Pillsbury Winthrop Shaw Pittman LLP
Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP Pritzker Levine LLP
Freitas & Weinberg LLP           Robins Kaplan LLP
Gibson, Dunn & Crutcher LLP  Sheppard Mullin
Hausfeld       Wilson Sonsini Goodrich & Rosati
Jones Day      Winston & Strawn LLP
Joseph Saveri Law Firm      Zelle LLP
Kesselman Brantly Stockinger LLP  

CLA Membership Pricing

New Options:  CLA introduces two new membership offerings for 2022!  More information (here)

Visit the CLA Career Center

Post a Job; Find a job. (here)

Students Can Join the Section for Free

Law students can join up to three sections of the California Lawyers’ Association (CLA) for free?  We’d love to have you. Link here.

Students can also receive a deeply discounted ticket to the GSI discussed above. 

A Deeper Dive: Labor Market Collusion is A Top Government Priority–Compliance Training Should Be As Well

Bob Connolly             
bob@reconnollylaw.com

It is abundantly clear that competition enforcers in the United States (DOJ/FTC/States) and around the world are making investigating labor market collusion a top priority.  On October 1, 2021 Acting Assistant Attorney General Richard A. Powers of the Antitrust Division spoke about the Division’s history and commitment to enforcing the antitrust laws, including criminal enforcement in labor markets: 

If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.”  [Powers added:] “Importantly, criminal prosecution of labor market conspiracies is the tip of the spear; the Division’s focus on labor markets extends beyond its cartel program. The Division is also committed to using its civil authority to detect, investigate, and challenge anticompetitive non-compete agreements, mergers that create or enhance monopsony power in labor markets, the unilateral exercise of monopsony power, and information sharing by employers.

I suggest reading the speech in its entirety (here). More recently EU Competition Commissioner Margrethe Vestager emphasized the EU focus on restrictions on competition in labor markets due to “no-poach” deals.  Vestager said individuals are directly negatively effected “when companies collude to fix the wages they pay or when they use so-called ‘no-poach’ agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.”  See EU’s Vestager warns of more anti-cartel raids, criticises ‘no-poach’ deals,  Reuters, By Foo Yun Chee, October 22, 2021.

Education on Labor Market Collusion Should be a Top Priority for Compliance Training

The Antitrust Division has recently brought several labor market collusion criminal cases.  The parties are “duking it out” as to whether the labor market collusion cases fall within the per se rule or should be judged by the rule of reason.  There are skilled lawyers on both sides of the issue and it will be fascinating to see how the cases turn out–perhaps eventually with a decision by the Supreme Court.  My own view is that, while I think applying the per se rule in criminal antitrust cases is unconstitutional, see Cartel Capers, Supreme Court Review Sought for Per Se Rule in Criminal Cases, as long as there is a per se rule, [and there is] the same rules should apply to labor/wages. 

With that in mind, below is some guidance I would consider regarding labor market collusion if I was asked to speak to corporate human resource employees and others involved in the hiring process. Disclaimer:  This is by no means a complete compliance guidance outline–but it would be a start.

There are two key documents to be distributed or summarized to get the attention of those involved in the hiring process.  The first is the joint October 16, 2016 FTC/DOJ press release: FTC and DOJ Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation which has a link (here) to “The agencies’ joint guidance includes a Q&A section that explains how antitrust law applies to various scenarios that HR professionals might encounter in their daily work lives.”  Another document to publish or summarize would be the DOJ speech on October 1, 2021 by Acting Assistant Attorney General Richard Powers (noted above), which highlights that the DOJ has made good on its promise to prioritize labor market collusion cases–including bringing criminal charges against individuals allegedly involved in the collusion that carry a maximum jail sentence of 10 years in jail.

Labor is an input for making any product.  Businesses can’t collude with competitors about the price they will pay for inputs to make a product or allocate suppliers–and labor is no exception.  Think about a company that produces widgets.  This widget requires copper wire, glass products, machinery and labor.  It seems obvious (hopefully) that an executive in Company A cannot call a competitor and say, “Lets agree to not pay any more than X for the copper?”  Or “If you don’t solicit quotes from my supplier, I won’t from yours.”  Labor is another input.  Why would it be OK to call a competitor and say “Lets agree not to pay any more than $X per hour” for the input of labor?

Of course, as with any input, not every agreement between competitors is a per se or “naked” price fixing violation.  When companies integrate resources, say in a buying group or joint venture, the agreement would be judged under the rule of reason because the “restraint” is ancillary to a procompetitive agreement.  Do the procompetitive benefits of the integration outweigh the anti-competitive harm?  The FTC/DOJ guidance explains a basic difference between a “naked” agreement and an agreement “ancillary” to a pro-competitive collaboration:

“That means that if the agreement is separate from or not reasonably necessary to a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under the antitrust laws.  Antitrust Guidance for Human Resource Professionals, Department of Justice Antitrust Division/Federal Trade Commission, October 2016, p. 3 (here).

Thinking of labor as any other input, I’d add this to my presentation:

  1. An agreement does not have to be in writing.  It can be inferred from other circumstances – such as evidence of discussions and parallel behavior.
  2. The DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. The penalties can be severe, including jail time for individuals.
  3. Like any other cartel, agreements to reduce competition can  be prosecuted even if they don’t eliminate all competition or are unsuccessful.

An Alternative to Protect an Investment in Employees

There are times a company has a legitimate interest in preventing a competitor from “poaching” one of its employees.  For example, two companies may put their best engineers together in a joint venture for a military project.  A company may not want its competitors to get a birds-eye view of the training and knowledge of its key employees and then snatch them away.  A “no-poach” agreement between the two companies would be ancillary to a procompetitive benefit but still be subject to antitrust scrutiny under the rule of reason depending upon the length and breadth of the no-poach agreement. An alternative to an agreement between the companies might be to ask the employees to be assigned to this joint venture to sign an agreement that they will return to their company after the joint venture expires.  The shorter the period of time, the more likely the agreement will be viewed as ancillary to the procompetitive benefits of the joint venture.

The Antitrust Division used to use agreements like this if an attorney was detailed for a period of time to a US Attorney’s office.  [I don’t know whether this program still exists.]  The attorney would get valuable training in the US Attorney’s Office, the US Attorney would get an extra resource for a period of time (procompetitive), but the employee would have to agree not to bolt from the Division for a position in the US Attorney’s office for a set period of time.  The procompetitive benefits of this agreement clearly outweighed the “restraint” on the employees’ movement.  It absolutely helps, at least to avoid a criminal case, if the employee is aware of and consents to the “restraint.”

There’s much more to be said about compliance and labor market collusion, and no doubt there are better and more detailed ways to say it.  The point is that if labor market collusion is a priority for enforcement agencies, compliance training should be a priority for companies.  And, if you take the approach that labor is an input, subject to the same antitrust rules as any other input, you have provided more than just training on labor market collusion.

Agency Updates

This feature includes selected press release from the Antitrust Division, USDOJ, the Federal Trade Commission and the California Attorney General’s Office. It does not include all press releases issued by those offices.  This appears to be a truly transitional time in antitrust enforcement, and reading the press releases can be very helpful to stay on top of changes.

JOINT DOJ/FTC STATEMENT

Department of Justice Antitrust Division and Federal Trade Commission to Hold [Virtual] Workshop on Promoting Competition in Labor Markets

October 27, 2021

“The Department of Justice and Federal Trade Commission (FTC) will jointly host a virtual public workshop on Dec. 6 and 7, to discuss efforts to promote competitive labor markets and worker mobility. The workshop will bring together lawyers, economists, academics, policy experts, labor groups and workers, and will cover recent developments at the intersection of antitrust and labor, as well as implications for efforts to protect and empower workers through competition enforcement and rulemaking.”  

“The workshop will be held virtually and webcast on the FTC’s website at FTC.gov.” (more information here.)

ANTITRUST DIVISION, US DEPARTMENT OF JUSTICE

To link to all Antitrust Division, DOJ press releases, click here 

October 1, 2021

“If it was important for enforcers to protect competition in labor markets decades ago — and I believe it was — it is essential now.”

October 13, 2021

“[T]he mission of the Division [is] to investigate, charge, and prosecute criminal corruption of the competitive process in all areas of the American marketplace—including government procurement. Out of that calling and mission, the Procurement Collusion Strike Force was born. Today, we approach the second anniversary of the PCSF and our integrated, and now global, effort to drive at the heart of collusion that targets public procurement.”

October 14, 2021

The Department of Justice announced that it will require Neenah Enterprises Inc. (NEI), U.S. Holdings Inc. (U.S. Holdings), and U.S. Foundry and Manufacturing Corporation (US Foundry) to divest certain gray iron municipal castings assets in order to proceed with NEI’s proposed acquisition of substantially all of the assets of US Foundry. NEI and US Foundry are two of only three significant suppliers of gray iron municipal castings in eleven eastern and southern states. Gray iron municipal castings are customized molded iron products such as manhole covers and frames used to access subterranean areas and grates and drains used to direct water in roadway, parking, and industrial areas.

October 1, 2021

The Department of Justice announced that it will require General Shale Brick Inc. (General Shale) and Meridian Brick LLC (Meridian), two of the largest suppliers of residential brick in the United States, to divest several assets used in the manufacture and sale of residential brick to preserve competition for these products in the southern and midwestern United States.

FEDERAL TRADE COMMISSION

To link to all FTC press releases, click here

October 25, 2021

The Federal Trade Commission announced that it is restoring its long-established practice of routinely restricting future acquisitions for merging parties that pursue anticompetitive mergers. The Prior Approval Policy Statement issued today puts industry on notice that the FTC’s merger enforcement orders will once again require acquisitive firms to obtain prior approval from the agency before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of ten years.

October 29, 2021

“Today, two sitting commissioners join forces with a zombie vote cast weeks ago by the sitting Director of the Consumer Financial Protection Bureau (CFPB) to launch yet another broadside at the market for corporate control in the United States. This attack appears in the form of a policy statement regarding the imposition of “prior approval” provisions in connection with the FTC’s merger review process.”

            October 25, 2021

Dialysis service provider with history of fueling consolidation must seek FTC approval prior to any new deals; Agency policy statement confirms return of prior approval as standard practice.

            October 21, 2021

Report finds many ISPs use web browsing data and group consumers using sensitive characteristics such as race and sexual orientation.

            October 15, 2021

Report shows disproportionate impact of some scams and consumer problems on communities of color, highlights agency responses.

            October 6, 2021

Commission resurrects use of legal tool to trigger steep penalties against lawbreaking colleges.

October 8, 2021

“In my view, the Commission’s report exaggerated the effectiveness of its settlement strategy and significantly understated the failure rate of past merger settlements.”

CALIFORNIA DEPARTMENT OF JUSTICE

For a complete list of California AG press releases click here

October 5, 2021         

California Attorney General Rob Bonta conditionally approved the sale of Adventist Health Vallejo (Adventist Vallejo), an acute psychiatric inpatient hospital, to Acadia Healthcare Company Inc. (Acadia). The Attorney General’s conditions, upon which the sale is contingent, address the risk of price increases in the limited market for acute psychiatric services in Northern California and ensure the availability of high-quality services for patients in the region, including those under the age of 18.

OTHER NEWS AND NOTES

The Third Quarter 2021 edition of this journal has a “Profiles in Women Worth Watching 20th Anniversary Edition” celebrating the talents of many women lawyers whose names may be familiar to you.

A Senate committee on Thursday approved a critic of the tech giants to lead the Justice Department’s antitrust division, sending his nomination to the full Senate for a final vote.

David McCabe, NY Times, October 28, 2021

Reuters, By Foo Yun Chee, October 22, 2021

“EU enforcers are planning a series of raids against companies suspected of illegal price-fixing, Europe’s anti-trust chief warned on Friday, as she also sounded the alarm about competition in labour markets due to “no-poach” deals.”

CNBC, by Lauren Feiner, October, 14 2021

“The American Innovation and Choice Online Act, which shares a name and broad features with a bill introduced by House Judiciary subcommittee on antitrust Chairman David Cicilline, D-R.I., would prohibit dominant online platforms from engaging in discriminatory behavior. That could include wielding their gatekeeper power to disadvantage rivals or to preference their own products over others.”

Rebecca Clar, THE HILL, September, 23, 2021

“The State Antitrust Enforcement Venue Act is a companion bill to a proposal that advanced out of committee in the House earlier this year along with a series of antitrust proposals.

The bill’s sponsors, top antitrust subcommittee Sens. Amy Klobuchar (D-Minn.) and Mike Lee (R-Utah.), said it would prevent state antitrust cases from being moved to courts preferred by defendants and consolidated with private suits.

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